News Brief No. 02/50

News Brief: IMF Completes Third Review of Stand-By Arrangement with Brazil

June 18, 2002

The Executive Board of the International Monetary Fund (IMF) today completed the third review of Brazil's performance under the SDR 12.14 billion (about US$15.7 billion) stand-by arrangement approved on September 14, 2001 (see Press Release No. 01/38). Completion of the third review allows Brazil to draw the equivalent of up to SDR 3.7 billion (about US$4.8 billion), of which SDR 3.3 billion (about US$4.3 billion) would be under the Supplemental Reserve Facility (SRF). This adds to the equivalent of SDR 4 billion (about US$5.2 billion) made available but not drawn under previous reviews, meaning Brazil is eligible to draw a total of SDR 7.7 billion (about US$ 10 billion) immediately from the IMF.

Following the Executive Board meeting on Brazil, Anne Krueger, First Deputy Managing Director and Acting Chair, said:

"Brazil's performance under the Stand-By Arrangement remains strong, with all end-March performance criteria, indicative targets, and structural benchmarks having been observed, although inflation measured on a 12-month basis remained above program levels. Despite this solid policy performance, financial market developments in recent weeks indicate that the authorities' commitment to maintain their cautious approach to macroeconomic policy is fully warranted.

"In this context, the measures announced on June 13 should enhance Brazil's already-strong macroeconomic fundamentals, contributing to a stabilization in financial markets. The increase in the primary surplus target for the consolidated public sector should contribute to improved public debt dynamics, while the recent tightening of liquidity should provide support to the real. The planned buy-back of external debt should provide an improved benchmark for Brazilian corporations seeking to access international capital markets and help to strengthen the real. The lowering of the floor on net international reserves under the program will allow this operation to occur without reducing the central bank's room for maneuver.

"Over the medium term, the authorities will need to continue to work to reduce Brazil's large external borrowing requirement and the borrowing requirements of the public sector, as well as to reduce the large share of the public debt that is contracted at floating rates or linked to the exchange rate. Further progress in these areas, as well as on remaining elements of the structural reform agenda, will contribute to a further strengthening in Brazil's position in the years ahead," Ms. Krueger said.